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Markets reverse 5-session losing trend

Snapping five sessions’ continuous decline, the equity bellwethers of Bombay Stock Exchange and National Stock Exchange managed to post gains…

Markets reverse 5-session losing trend

Dalal Street

Snapping five sessions’ continuous decline, the equity bellwethers of Bombay Stock Exchange and National Stock Exchange managed to post gains on Tuesday which analysts attribute to oversold market and short covering by market participants who as a matter of prudence have limited their investment to stock specific action — either buying or selling — depending on the market mood and domestic and external cues.

Despite gains the trade appeared subdued for want of a strong trigger to accelerate and sustain day’s gains. Increase in 30-scrip Sensitive Index of BSE and 50-share Nifty of NSE was significant as it bucked the trend in a majority of exchanges in Asia-Pacific.

Overnight positive end to stock trade in Wall Street failed to impress the regional markets. Dalal Street appeared trading in line with the domestic fiscal and political conditions.

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Business media polls suggest the country’s GDP could grow to 7.4 per cent in January-March 2018 quarter. But likely upside risk to consumer price index inflation remains in view of increase in fuel prices and appreciation of the rupee against the American dollar.

The day’s big event for investors and brokerages was earnings data of the country’s biggest lender State Bank of India for January-March quarter with several brokerages and business media predicting increase in net NPAs which will force bank to declare bigger net loss for Q4.

The SBI stock opened and traded in red until the numbers were out. Its intra-day low was Rs 241.60 — down more than 1 percent — as the market looked forward to hear the management’s commentary on its asset quality and slippages.

Net loss for Q4 at Rs 7.718 crore was more than estimated in Reuters and other business media polls. This was on account of surge in provisioning for stressed assets. SBI has provided Rs 28,096 crore to cover increase in net NPA at 5.73 percent from 5.61 percent in Q3 ended 31 December.

However, SBI stock bounced back as most brokerages felt the lender’s bad loans might have bottomed out with slippages rising to all-time high of Rs 33,000 crore.

On the positive side, SBI declared increase in NII or net interest income (the difference between interest earned and interest expended by a lender) to Rs 19,974 crore from Rs 18,070.7 crore for same Q4 in 2017. This 10.5 percent increase in NII buoyed the SBI share which started climbing in the last one hour of day’s trade.

Geopolitical considerations have compelled global crude oil suppliers to cut their production, say experts who also point out 2 percent increase in oil consumption in January-March quarter.

The supply and demand mismatch has been a part of OPEC’s strategy to score brownie points taking advantage of Iran’s predicament following the US’ unilateral withdrawal from the multi-nation nuclear treaty with Iran.

Dalal Street veterans say the rising crude prices as a major fallout of geopolitical situation in the Arab world is an artificial crisis that is taking a toll on stock business.

For India it is a major threat since unexpected jump in oil import bill coupled with weakening rupee in trade with US dollar has resulted in heavy sell-off by foreign funds in 2018 calendar year so far.

The prevailing trade sentiment in Dalal Street is influenced by just these two adverse factors. Crude and rupee pose potential threat to consumer price index linked inflation which in turn may compel Reserve Bank of India to hike its repurchasing policy or repo rate from 6 percent to 6.25 percent after a gap of several quarters.

As oil prices surged, stocks of oil marketing companies took a hit. Intra-day HPCL and Indian Oil Corporation stocks were down 3.07 percent and 2.5 percent respectively.

However, as the business was closing in Dalal Street, IOC declared 40.25 percent surge in its profit for Q4 at Rs 5,218.10 crore against Rs 3,720.62 crore for the same quarter in 2017. The state-run PMC has beaten the media estimate of Rs 4,800 crore profit.

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